Details of Yahoo’s Google advertising deal

Yahoo moved swiftly this afternoon to announce an advertising partnership with Google, hours after declaring an end to its lingering Microsoft negotiations. Under the deal, ads from Google’s lucrative system will appear next to Yahoo search results in the U.S. and Canada.

“Clearly it is time to move on,” said Jerry Yang, Yahoo’s chief executive, during a conference call today, adding that Yahoo believes the Google deal will help it do that.

But rather than closing the book on the saga, which began with Microsoft’s unsolicited bid for Yahoo, today’s developments appear likely to open a new chapter. Yahoo says the agreement will be non-exclusive and will make it a stronger competitor. However, Microsoft previously raised antitrust concerns about an alliance between the No. 1 and No. 2 players in the search business. The Redmond company has not commented on the deal yet.

Buried in the Yahoo release is another notable piece of news: Google and Yahoo will make their instant-messaging systems work with one another. The Yahoo and Microsoft IM systems already work together.

Yahoo said the Google ad deal represents a revenue opportunity of as much as $800 million a year, and $250 million to $450 million in annual operating cash flow. Yang said the companies don’t believe the agreement requires regulatory approval, but the companies are waiting three-and-a-half months to allow the U.S. Justice Department to review it.

The deal doesn’t, by its terms, close the door on a future Yahoo acquisition. From the Yahoo news release:

“The agreement allows either party to terminate the agreement in the event of a change in control of either party. The agreement also requires Yahoo! to pay a termination fee if the agreement is terminated as a result of a change in control that occurs within 24 months. The termination fee is $250 million, subject to reduction by 50 percent of revenues earned by Google under the agreement.”

Update, 4:45 p.m.:This statement was released on the Google-Yahoo deal by U.S. Senator Herb Kohl, chairman of the Senate Antitrust Subcommittee:

“We will closely examine the joint venture between Google and Yahoo announced today. This collaboration between two technology giants and direct competitors for Internet advertising and search services raises important competition concerns. The consequences for advertisers and consumers could be far-reaching and warrant careful review, and we plan to investigate the competitive and privacy implications of this deal further in the Antitrust Subcommittee.”